Budgeting feels like scarcity?

When we first got into FI I meticulously tracked every expense and carefully organized them into different categories. Nowadays, I just look at how much we spend on average per month. Everything goes on credit cards and my banking app categorizes everything for us (mostly correctly). At the end of each month, I see how much paycheck is left over to figure out our expenses for that month.

I lump things into necessary and discretionary. Necessary expenses are fixed and unavoidable: mortgage, utilities, groceries. Everything else is discretionary: dining out, random purchases, spending on activities. You should probably have a rough idea of what you're spending on each.

I don't think making a strict budget and breaking out expenses per category is necessary, but I do think it's necessary to know where your money is going and how much your life costs overall.

It doesn't sound like you need to budget, but you do need to add up your past spending, as otherwise you cannot plan anything.

Do it for the past couple years from actual records. Do not guess. Categorize by mandatory and discretionary.

Knowing how much your life costs is very important in knowing what retirement will look like or whether your current/future portfolio will be able to sustain it.

Having a detailed "budget" will definitely help provide the most clarity, but other other methods like Reverse Budget/Pay Yourself First/ Un-budget? With a Reverse Budget, you take your current income, minus your current savings and what is left is what your life costs. The Unbudget will unfortunately not give you the details that will allow you to accurately adjust your expenses according to your desired retirement spending. Example: If you want to travel more in retirement, you will need to know much much you are currently spending on travel and adjust it. You would have to guess on whether your current lifestyle is what you want to spend in retirement, or you can guess to adjust it down by 25% or up by 25%.

With a detailed budget you can ask yourself if your current detailed categories reflect what you would be spending in retirement. Whether the expense will even be there in retirement (children's education). Take travel as an example: You can look at your current travel and get a good idea what a vacation would cost you and then ask yourself if you will be doing more of those trips or whether you want to adjust because you want to upscale your accommodations from 3* to 4*

A budget does not need to be restrictive either. YNAB (You need a budget) software has a term they use: "Role with the punches". Budgeting will only get you so far. At least you have planned for an expense, but if it comes in more than you expected that is OK. You might only have budgeted for 200, but the expense is 250. Well then you borrow or even take the deficit from another budget, but it is a conscious decision. In this case you have most of the money available and you only have to cover the 50 that you are short. If you never budgeted, you would need to cover the full 250, which you might or might not have.

I approached budgeting in a way most people would probably consider "backwards," and I wonder if it might help you.

I didn't start with an abstract idea of what I thought I wanted to spend in a category. I started with looking at how much I've spent in a category over each of the last several months, looked at what I'd gotten for that expense, and evaluated whether I felt like the benefits I got from spending that money compared well with my priorities and with my other opportunities to spend that money. If not, I'd try adjusting my plan down for the next month to see if that felt better. If it did, I'd try spending more. Eventually that led to a "right-sizing" where it feel like my plan for how much money I'm going to spend in each category corresponds pretty well to the enjoyment I expect to get out of it.

For example, I'm not a foodie. Turns out I don't really care about "new culinary experiences." I realized I was spending money on having other people cook food out of convenience, not because it was actually adding anything meaningful to my life, and I could get a similar level of convenience by batch cooking at less than half the cost. Now the only money I spend at restaurants is when I'm with other people.

And it's not all monthly. Like, I realized I do not care AT ALL about fancy features in a car. I just don't. I'm perfectly content driving a car with 15-year-old features as long as it runs well enough not to leave me stranded on the side of a road someplace.

On the other hand, I learned that living somewhere quiet and peaceful is EXTREMELY important to me. Having noisy neighbors has an outsized effect on my quality of life. I don't need a lot of space. I don't need fancy space. But WOW I need quiet space. So I spend next to nothing on my car, but more on rent than my peers.

Every month, I just look at how what I've spent aligns with what I say my priorities are, and how much benefit I'm actually getting out of it. Then I find that during the following month itself, I have that already in mind, guiding me when I'm considering doing something I know doesn't really make me much happier, so I change my mind.

It's more of an exercise in mindfulness than goal-setting for me, and that finally worked when category limitations never did. And it helped me home in on numbers for my lifestyle that felt like "the right fit," so I could base my FI calculations on those.

Monarch money uses a flex budget.: www.monarchmoney.com

To me it's similar to the 50/30/20 budget process: www.nerdwallet.com

You don't need budgeting to figure out your FI number if you can figure out what your annual expenses are. I use monarch money and mint before that so I regularly track my expenses and then can extrapolate my FI number by multiplying it by 25. So if I spend 40k annually, multiply that by 25 and that's 1 million.

A budget can have two categories: 1. to spend now or soon 2. to save/invest for later.

It can have three categories: 1. to spend 2. to save for unpredictable or bigger expenses (like the next car or a new roof or that big vacation you plan in 2028) 3. to invest for financial independence. And a budget can also have 120 categories.

I think somewhere in there is the "ideal" budget for you. Maybe it has three categories. Maybe it has ten. And maybe the amount of categories changes over time, too.

I don't think you necessarily need a budget to know your FI number... perhaps a first step is to look at how much money you spent on average in the last five or the last ten years. So that's looking back. Now if your average expenses turn out higher than you expected, then perhaps with a budget you can try to reduce your expenses and cut back where it hurts the least. But if your expenses are indeed reasonable, then maybe the only 'budgeting' you need to do is to keep checking every once in a while that your expenses are still reasonable.

My wife and I have never budgeted, mainly because we are frugal like you are. We just auto deduct our investments and keep an eye on our bank account. We do assess our spending about once a year for FI number purposes, only takes a few hours of going through credit card and bank statements.

I like to think of it as setting savings goals rather than a budget… and I always budget a discretionary fund to catch the overflow from different spending categories.

If you have a goal you’re more likely to be closer to it.